Ahern told a press conference in Dublin he would bow out as taoiseach on May 6, after he becomes the first Irish leader ever to address the US Congress.

He denied any wrongdoing but said the controversy was diverting attention from the job of governing the country and the work of his ruling Fianna Fáil party.

"I know in my heart of hearts that I have done no wrong," he said, adding that he was standing down "in the interests of the country and the party".

"I have been reflecting upon pursuing this course of action for some time. This is solely a personal decision," he said.

Ahern, who became the Irish prime minister in 1997, said he had nothing to fear from ongoing inquiries about his finances at the tribunal into planning corruption. "I have never accepted a corrupt payment," he said.

Fianna Fáil sources told the Guardian his decision to quit was connected to the Irish referendum on the Lisbon EU treaty. Senior advisers had been worried that the poll would be turned by the opposition into a referendum on his leadership rather than the detail of the treaty.

Since his third election victory last year, Ahern has been dogged by allegations about his personal finances involving loans in sterling and dollars from private supporters in the Irish business community.

In a hint that his resignation was linked to concerns within Fianna Fáil over him becoming an electoral liability, Ahern said: "Just as stability is important in a coalition government, it is even more vital in a political organisation."

As well, Fianna Fáil wants a new leader in place at least a year before the 2009 local government elections and the European elections.

Brian Cowen, Ireland's minister of finance, is tipped to succeed Ahern. The new taoiseach will take control of the Yes campaign on the Lisbon EU treaty referendum scheduled for May, and lead the party in next year's local and European elections.

The Irish Labour party deputy leader, Liz McManus, said it was right that Ahern stand down. She paid tribute for his role in securing peace in Northern Ireland.

Over the weekend, the foreign minister, Dermot Ahern, advised the taoiseach not to make any statement to the Dáil Éireann, the Irish parliament, this week about his personal finances. But the ruling party's main coalition partner, the Green party, argued he must make a statement to the Dáil.

The Mahon tribunal, which has been investigating allegations of political corruption, has questioned Ahern over money lodged in his personal accounts from wealthy supporters in the early 1990s while was finance minister.

Ahern was today due to attend the Dublin high court challenge he has launched against the tribunal. He alleges the inquiry has breached his rights to privacy under the Irish constitution by going into his personal affairs.

The 11 years of Ahern's rule were marked by unprecedented economic growth and prosperity, and the solidification of the peace process. Having won three general elections in a row, Ahern is the most enduring Irish prime minister since Éamon de Valera.

The former British prime minister, Tony Blair, today paid tribute to Ahern for his role in Northern Ireland, calling him "a remarkable man with a remarkable record of achievement".

"Bertie Ahern was a great taoiseach, a leader for whom I had the greatest respect, admiration and friendship.

"He will always be remembered for his crucial role in bringing about peace in Northern Ireland, for transforming relations between Britain and the Irish Republic and for presiding over a sustained period of economic and social advance in Ireland.

"He was also a key figure in Europe. He will have, deservedly, a central place in his nation's political history and much more widely."